As the railroad industry thrives, Pittsburgh companies profit and add jobs
Back on track
February 5, 2012 3:00 PM
Albert Neupaver, president and CEO of Wabtec Corporation in Wilmerding, the largest of all railroad suppliers in the Pittsburgh region, with more than 8,500 employees worldwide.
Ron Safran assembles an air compressor at the Wabtec factory in Wilmerding. The rail equipment supplier reported nearly $2 billion in revenue last year.
By Tim Grant Pittsburgh Post-Gazette
The railroad industry is picking up steam again, after losing ground decades ago to the nation's trucking industry. And Pittsburgh's expertise and history in the business -- Andrew Carnegie and the city's other industrialists needed good ways to move their steel a century ago -- has put the region on track to benefit from rail's resurgence.
Western Pennsylvania is home to companies that build railroad cars, make parts to run the cars and fix the tracks beneath their wheels. Railroad signalling -- a key element in helping trains avoid running into each other -- keeps engineers busy on the South Side, while a company in Sharon refurbishes train wheels and couplers for reuse.
"Go to any railroad or any subway or transit station in North America and you will see that we have [products] in every locomotive, every freight car, subway car or transit bus," said Albert Neupaver, president and CEO of Wabtec, a Wilmerding-based rail equipment supplier with nearly $2 billion in revenue last year.
"In every one of them, there is some kind of product from Wabtec."
This is not a bad time to have expertise in trains. As the nation digs its way out of a deep recession, the railroad industry stands out as one of the few that are thriving and continuing to recruit and hire workers for high-paying manufacturing and engineering jobs.
"We are in the midst of what we call a rail renaissance," said Stan Hasselbusch, who until last week served as president and CEO of Green Tree-based L.B. Foster Co., a manufacturer that sells about a half-dozen key products for the rail industry such as track, concrete ties, anchors and joints.
Much of the rail industry's turnaround stems from its own self-improvement program.
The original heyday of railroads came to an end by the 1960s because of the advent of trucking and the interstate highway system. But in recent years, highways have become more congested and the cost of fuel has made road transportation more expensive.
The Association of American Railroads, based in Washington, D.C., reported recently that in 2010 railroads carried about 43 percent of intercity freight, while trucks moved about 31 percent. Railroads also proved to be a more economic means of transportation, moving a ton of freight an average 484 miles per gallon of fuel, a rate 106 percent more efficient than in 1980.
"Thanks to improved freight car design and other factors, the average freight train carried a record 3,585 tons of freight in 2010, up 61 percent since 1980," said a report by the railroad association released in October.
That, in turn, is driving industry investment and creating jobs.
The seven largest railroads in North America increased their capital spending from 2005 to 2011 by about $5.3 billion, or roughly 83 percent, according to the railroad association. Last year they spent a combined $11.7 billion, or 11.8 percent more than the previous year.
Closer to home, General Electric Co. recently announced it will spend $72 million to add a diesel engine plant and upgrade another one in Grove City to meet demand for locomotives. The Mercer County factory will begin production by the end of this year and create 150 jobs by early 2013.
Meanwhile, Wabtec, which has the distinction of being the only U.S. company whose year-end stock price has increased for 11 consecutive years, now operates manufacturing plants in 18 countries and sells products in 125 countries around the world.
The railroad equipment company started by George Westinghouse nearly 150 years ago revolutionized the railroad industry with the invention of the air brake, but it now produces many more products including locomotives.
Wabtec is by far the largest of all railroad suppliers in the Pittsburgh region, with more than 8,500 employees worldwide. Its number of employees here has increased from 400 to 600 in the past two years. Total workers worldwide have increased from about 5,000 to 8,500 during the same time frame.
The company's sales and market share is growing domestically and internationally. In the first three quarters of 2011, Wabtec's total U.S. sales increased 28 percent and sales outside the U.S. were up 30 percent.
"There are several companies that do the same kinds of things we do," Mr. Neupaver said. "But we are an industry leader and always have been."
Another local company with a storied history is Union Switch & Signal, which was bought in the 1980s by Finmeccanica, an Italian conglomerate that changed the smaller company's name in 2009 to Ansaldo. Ansaldo builds railroad signalling devices and employs more than 600 workers in Pittsburgh, mostly engineers.
"Railroad signalling is primarily about safety," said Tom Lawton, president and CEO of Ansaldo, based in South Oakland. "You've got large pieces of equipment running at rather high speeds, and they are not easy to stop.
"The signalling system fundamentally tells the train operator how far and how fast he can safely proceed."
The third major, publicly traded railroad company based here is L.B. Foster. The Green Tree company expanded its international reach into countries such as Canada, China and the United Kingdom by acquiring O'Hara-based Portec Rail Products a year ago. L.B. Foster earned revenue of nearly $600 million last year and employs about 900 workers around the world, including about 120 workers in Pittsburgh.
"We don't have any facilities or plants in the Pittsburgh area," Mr. Hasselbusch said. "Our employees in Pittsburgh are all office workers. This is our headquarters for the whole company."
Besides Wabtec, Ansaldo and L.B. Foster, dozens of smaller players in the region fill a variety of other needs for freight, passenger and transit rail systems.
While Wabtec sells new equipment to rail lines, American Industries in Sharon refurbishes and repairs train wheels, side frames and couplers for reuse. The company employs 150 people in the region.
It's no accident that so many railroad-related companies happen to be based in the Pittsburgh region.
The relationship between the railroads and the industrialists during the boom years of Pittsburgh's steel industry was a close one because railroads were so important in delivering steel and materials used to produce steel.
David Grinnell, an archivist at the University of Pittsburgh library system, said before steel and railroads took center stage, there was a thriving iron industry here. The first train rails were made of iron, but they were not as flexible and they broke often.
Railroads' search for new material to build tracks fed the flames of steel fever.
"In order for railroads to expand, [they] needed more rail, and that is what spurred the steel industry," Mr. Grinnell said. "If expansion for the U.S. was going to take place, Pittsburgh was the logical center for expansion."
The city became a gateway to the West, and railroads were a means of transporting steel and coal to Chicago and St. Louis as new markets opened for building skyscrapers, bridges and more railroad tracks.
Although that boom eventually came to an end, it looks like the railroad industry is making a comeback as the economy slowly recovers.
"The railroads have turned around a lot of the factors that led to their decline," said Mr. Hasselbusch of L.B. Foster. "There's less competition, less regulation and they are more fuel efficient."
It's not just railroad suppliers that are creating jobs in Pennsylvania these days. The Association of American Railroads reports there are 6,490 freight railroad employees in the state working for 55 freight railroads and earning average annual wages and benefits totaling $90,300.
There is no indication the railroad equipment and supply business will slow down anytime soon, but there will be challenges and opportunities.
Railroads across the nation, including the one owned by billionaire Warren Buffett -- Burlington Northern Santa Fe -- are currently under pressure from the federal government to install crash-avoidance technology that is expected to cost $13 billion.
It has been estimated to be the most expensive U.S. government mandate in history for the nation's railroads.
A law passed in 2008 following a California train crash that killed 25 people requires railroads to install technology to stop or slow trains to prevent crashes on rail lines used to transport passengers or toxic chemicals by the end of 2015.
The U.S. House transportation committee has proposed extending the deadline five years, from the end of 2015 to the end of 2020, in response to some railroads saying the necessary technology won't be ready in time to meet the earlier deadline.
Wabtec currently makes the only on-board computer technology approved by the Federal Railroad Administration to comply with the mandate.